Thursday, November 5, 2009

The Undoing of Under Armour

I always admired the Under Armour brand. I loved their product. I loved their “We Must Protect This House” marketing campaign and when my friend would wear his Under Armour cold gear to play intramural football, I admit, I was a little jealous. The stuff was just cool.

(Editors Note: If you look back to the Brands I Love post, I even mention Under Armour.)

Quickly, UA became a hot brand and like most do they took advantage. UA was on display throughout every sporting goods and athletic shoe store in the United States. They added line-extensions into gloves, socks, sweatbands, sweatshirts, jackets, golf wear, cleats and made big bets on running shoes. Don't believe me?

This unfocused short-term approach paid off for awhile. Their revenue and profit is outlined below.

2005.... $281 net.... $19 profit
2006.... $430.6 net....$38.9 profit
2007.... $606.5 net....$52.5 profit
2008.... $725.2 net....38.2 profit

(in millions of US dollars)

However, last week marked an important point for UA. Their stock was hammered by investors after announcing a 16 percent increase in sales. How could that be?

Investors were reacting to a conference call to analysts where they confessed they would not see growth in the highly sought after footwear category in the upcoming year. All this after UA made a major splash in athletic shoes at the Super Bowl in 2008 ($25 million dollar buy) complimented with a rush of ads in 2009. According to footwear analyst quoted in Ad Age, “they tried to go big” but “they would have been much smarter to start small.”

Analysts seem to agree that their poor performance in footwear was due to poor tact. The campaign into the category was too expensive, poorly timed and failed by “notably less testosterone-fueled” advertising.

However, none came to the conclusion that the running shoe market is too crowded and they don’t belong. Even more unfortunate is that the UA Founder and CEO Kevin Plank didn’t think so either despite this early warning sign. He says “I just want to drive home the point; we couldn’t have greater confidence in the upside of our long-term potential in footwear.”

Too crowded? Just off the top of my head: Nike, Adidas, New Balance, Asics, Reebok and Saucony.

UA became a hot brand because they had great brand strategy: create a category and give it a great name. A perfect name in fact. UA created the compression wear category. It stayed warm in cold weather, was breathable in the heat, and didn’t retail moisture. As a bonus the product felt great: put it on and your muscles felt as through they would rip right through the shirt.

Now because of a lack of focus and over-saturation of line extensions, Under Armour is cooling off fast and feeling like a fad.


Mark L said...

If you are talking about downfall of companies, look into what netflix might be agreeing to. In what this article calls a "deal with the devil."

Alexander said...

Wow, good find.